Time Warner-Viacom dispute heads toward midnight deadline

Wednesday

Dec 31, 2008 at 12:01 AMDec 31, 2008 at 8:29 PM

Media giant Viacom Inc. said its Nickelodeon, MTV, Comedy Central and 16 other channels will go dark on Time Warner Cable Inc. at 12:01 a.m. Thursday if a new carriage fee deal is not agreed upon by then.

Ryan Nakashima

A spat between Time Warner Cable and Viacom over how much the cable company pays to carry channels such as MTV and Comedy Central headed down to the wire on New Year’s Eve — with little sign of movement as a blackout looked likely at a minute past the stroke of midnight.

Time Warner, the nation’s second-largest cable operator, proposed an increase in what it pays for Viacom’s channels, but the offer was rejected as “a pittance,” said Viacom spokeswoman Kelly McAndrew.

If the impasse is not resolved, shows such as “SpongeBob SquarePants” and “The Colbert Report” will be unavailable to Time Warner’s 13.3 million cable subscribers. Time Warner Cable has about 2.3 million customers in Ohio, one of the company’s primary service areas along with New York state, the Carolinas, Southern California and Texas.

Time Warner Chief Executive Glenn Britt on Wednesday called Viacom’s demand for a 12 percent increase in fees — an extra $39 million on top of the estimated $300 million it pays Viacom annually — extortion and outrageous given the recession. Viacom countered that the requested increase amounted to an extra $2.76 annually per subscriber.

“We sympathize with the fact that Viacom’s advertising business is suffering and that their networks’ ratings have largely been declining,” Britt said in a statement. “However, we can’t abide their attempt to make up their lost revenue on the backs of Time Warner Cable customers.”

In a public relations blitz, Viacom took out newspaper ads showing Nickelodeon’s animated bilingual heroine “Dora the Explorer” crying and clinging to her monkey pal, Boots.

“Why is Dora crying?” the ad asks. “Time Warner Cable is taking Dora off the air tonight!” The ad urged viewers to call Time Warner Cable and demand that their favorite shows remain on the air.

Viacom also planned to run TV ads starting Thursday on local broadcast stations in 11 major markets including New York, Los Angeles and Dallas, blaming Time Warner Cable for the blackout.

Time Warner spokesman Alex Dudley said the advertising campaign was a sign that Viacom had been preparing for a damaging shutdown.

“They never had any intention of settling this or negotiating in good faith,” Dudley said.

Viacom said Americans spend a fifth of their TV time watching Viacom shows but its fees make up less than 2.5 percent of the Time Warner cable bill.

McAndrew said that despite ranking high in the ratings, Viacom’s cable networks’ average daily license fee is 65 percent lower than that of networks run by The Walt Disney Co., News Corp.’s Fox, Time Warner.’s Turner Broadcasting System and Discovery Communications.

Analyst Michael Nathanson with Bernstein Research said Viacom’s channels had been “underpriced relative to their peers.” He expected a settlement relatively quickly.

“Both sides may not want to see if this battle results in mutually assured destruction, as Viacom loses ad dollars and Time Warner Cable loses subscribers,” he wrote in a research note.

Public carriage fee disputes of this scale between a programmer and a cable operator are not that common, especially when there’s a threat of a blackout, said Derek Baine, senior analyst at SNL Kagan in Monterey, Calif. Typically, both sides agree on contract extensions as they negotiate on terms, he said, and any blackouts don’t last long because TV operators get calls from outraged customers.

One prominent carriage fee fight in recent years was in 2004, between Viacom and EchoStar, the former name of Dish Network Corp. Shows were dropped for two days.

In October, Time Warner Cable wrestled with LIN TV Corp., which operates local TV stations affiliated with NBC, CBS, Fox and CW. But this time, Time Warner Cable faces Viacom, the largest cable programmer, not a small independent with a handful of channels.

“It’s a must have,” Baine said. “That’s probably why Viacom is playing hardball.”